14.
Contents xv
7. How to Create Synergy between Procurement and Logistics
Departments 943
8. Supplier Feedback Encouraged as Buyers Expand Report Card
Use 946
9. NAPM Conference Probes Supplier Development Strategies 948
10. Avoid Price Change Surprises by Spelling It Out in the Contract 953
11. How Purchasing Pros Are Expanding the Scope of Supplier
Partnerships 957
12. Expert Guidance on How to Solidify Supplier Partnerships 958
13. Bring Suppliers Back to the Table after the Contract Is Signed 961
14. Now Is the Time to Review Purchase Order Terms and
Conditions 964
15. Supplier Briefs Offer Control and Speed During Negotiation 968
5. E-Purchasing/E-Supply Chain 973
1. Embrace the Internet, but Do Not Let It Depersonalize Supplier
Relationships 973
2. Three Experts’ Advice on How to Start an E-Procurement
Initiative 976
3. Hot E-Purchasing Tools from NAPM Meeting 980
4. APICS Introduces Audience to Hot New E-Purchasing Solutions 984
5. E-Procurement Selection in Just a Fraction of the Time, the
Mobil Way 988
6. What You Need to Know Before Moving to E-Procurement 992
7. How the Internet Will Ultimately Transform Supplier
Management 996
8. Expert Advice on Building Your Department’s E-Purchasing
System 998
9. Six Steps to Get Your Supply Chain Ready for Trading Exchanges 1003
10. How Web-Based Tools Are Fostering Supply Chain
Collaboration 1007
11. Five Ways Leading Companies Can Become E-Supply Chain
Innovators 1010
12. Web Exchanges Synchronize Supplier Relationships and Order
Visibility 1013
13. Three New Studies Assess E-Supply Chain Service Providers 1015
14. Dozens of New Net-Based Logistics Solutions Aid Supply Chain
Management 1018
15. Concentrate on Four Areas for Seamless E-tail Logistics 1020

16.
Chapter I-1
Benchmarking Logistics
Performance
L P R S 
B S C P
In the current metrics frenzy, the “measure of the day” is the focus of most
discussion and action. Unfortunately, this approach generates streams of
short-term data but not much in long-term solutions. More emphasis should
be given to the philosophy and development of the measurement process
itself—in essence, “what we want to know, and what we are going to do
when we ﬁnd out about it.”
Those Who Have Craftily Applied Metrics
For instance, Baldrige award winner, Stephen H. Woodward, vice president
of logistics and purchasing at Armstrong World Industries, Inc., Worldwide
Building Products Operations (Lancaster, Penn.; shwoodwrd@armstrong.
com), believes, “Without an effective, well-deﬁned and communicated strat-
egy, it is difﬁcult to set the ‘right’ type of measurement.” Further, he wants
the feedback “quickly enough so the people receiving the metrics can initi-
ate actions to correct the problems that have been uncovered.”
And, Alan L. Milliken, CFPIM, CIRM, and manager of supply chain
projects at BASF Corp. (Mount Olive, N.J.; millika@bask.com) explains,
“We’re looking for measurement processes, and not just a list of measure-
ments.” To achieve this, he outlines some primary factors that performance
metrics should provide. They should
3

17.
4 LOGISTICS MANAGEMENT
• Set expectations. “We align our metrics within the organization and
link them to our customers’ and shareholders’ expectations,” he ex-
plains.
• Control. The applied metrics should enable self-evaluation and facili-
tate control of linked performance.
• Identify opportunities. “We look to the metrics to quantify the gaps be-
tween performance and target, which then facilitates the develop-
ment of our action plans,” he offers.
Create a Framework for Measurements
“There are many standards by which we judge performance measures, but the
idea is to create the criteria ﬁrst, before you just throw the individual metrics
out there,” maintains J. Paul Dittmann, vice president of global logistics at
Whirlpool Corp. (St. Joseph, Mich.; john_p_dittman@email.whirlpool.com).
He particularly recommends integration economy. “That’s really our
challenge in the supply chain because trying to get all of the functions oper-
ating as a process can be difﬁcult,” he notes. See the sidebar for other criteria.
Ways to Evaluate Performance Measures
Criterion Description
Validity The metric accurately captures the events and activities be-
ing measured and controls for any exogenous factors.
Robustness The metric is interpreted similarly by the users and is com-
parable across time, location, and organization.
Usefulness The metric is readily understandable by the decision maker
and provides a guide for action to be taken.
Integration The metric includes all relevant aspects of the process
Economy and promotes coordination across functions and divisions.
Compatibility The beneﬁts of using the metric outweigh the costs of data
collection, analysis, and reporting.
Level of Detail The metric provides a sufﬁcient degree of granularity or ag-
gregation for the user.
Behavioral The metric minimizes incentives for counter-productive
Soundness acts or game playing and is presented in a useful form.
Source: J. Paul Dittmann.

18.
Benchmarking Logistics Performance 5
Top Management Participation Is Critical
“It is essential to keep top management committed to the initiative,” insists
Milliken. At BASF, for instance, the following tactics ensure that manage-
ment’s attention is not diverted from the metrics initiative:
• Integrate operational metrics into ﬁnancial reporting. “You don’t want to
have one book for operational results and a separate one for ﬁnancials;
that gives the impression that operational results aren’t important,” he
argues.
• Include performance review at all staff meetings. “We do not want periodic
Y
meetings to discuss performance measurements; it’s the worst thing
in the world to have a separate meeting,” Milliken insists. “By inte-
FL
grating it into routine staff meetings, it sends a message that this is just
as important as anything else on the group VP’s plate.”
AM
• Incorporate high-level metrics into management’s compensation objectives. “If
it doesn’t hit you in the pocket, it’s just not as important,” he notes.
“Since 1998, we’ve been successful in having several nonﬁnancial
TE
measures, such as on-time delivery performance, begin to impact the
pay of our group vice presidents.”
• Include resources for the measurement process as line items in the annual bud-
geting process. “We have shown that measurements consume resources.
No matter how good a job we do, or how much we may restructure,
we need resources. So, it now gets done,” he says.
Performance Measures Reflect Strategy
Before Whirlpool instituted its metrics program, the company “took a step
back and asked, ‘What’s really important to us?’” Dittmann comments. “We
found it was four things.” He cites them as customer service, cost, working
capital, and cycle time.
“If that’s what is really important to us, certainly our measures have to
capture those elements,” he explains. “We then set up a series of overarch-
ing principles for our supply chain measures. This is what we’re going to
evaluate them by.” Among the factors are the following:
• The measures must be global. “We want the same supply chain measures
in all regions of the world,” Dittmann describes. “They would not be
Team-Fly®

19.
6  
used punitively but to establish a framework from which we can cre-
ate a dialogue and share best practices.”
• They must be interlinked to avoid suboptimization. If a measure for in-
ventory is established, there would be an offsetting metric on cus-
tomer service. “We don’t want to suboptimize one at the expense of
the other,” he explains.
• Measures must have an external link to economic value-added. “We’ve dis-
covered economic value-added is a measure that is the most direct
link to stock price growth,” he explains. “Basically, it combines into
one measure the balance sheet and income statement so you’re not
only looking at one dimension (income) without considering the as-
sets you’ve had to employ to generate that income,” Dittmann details.
• Metrics must be fully communicated and understood throughout the organiza-
tion. Dittmann and the others insist on this. “Unless that’s the case, it’s
all a waste of time,” Dittmann states. “Linkage is assurance that when
we meet our nonﬁnancial goals, our strategic and ﬁnancial goals are
met as well.”
W’ B L 
H A T D I?
In an environment where customers demand more value-added services, it
is important to measure value and costs. According to a recent Managing Lo-
gistics survey, however, only 25.3% of respondents say that benchmarking has
been successful in helping to control logistics costs in the past year.
Respondents to the survey identiﬁed ﬁve main areas that they bench-
mark and updated us with their progress so far (see Table I-1.1). Topics in-
clude inventory accuracy, inbound and outbound shipment accuracy, and
timeliness of inbound and outbound shipments.
For those who do benchmark, the results are something to brag about.
“We began an increased level of service measurement and warehouse pro-
ductivity measurements, both at the individual and total warehouse levels,”
explains the director of operations for a small wire and cable ﬁrm in New
York. “We have been able to reduce service complaints, which has also de-
creased our need for customer service staff.”
It is interesting to note, however, that the current benchmarks are
slightly lower than those in the year-earlier Managing Logistics survey. This
may be because newly implemented technologies are not used to their

20.
Benchmarking Logistics Performance 7
Table I-1.1 Managing Logistics Logistics Benchmark Survey Results
Inbound shipments on time
Year earlier Current
Average 88.6% 88.2%
42.5% of companies had 92% or better on-time inbound shipments
35.4% had on-time inbound shipments between 84.1% and 91.9%
22.1% of companies said on-time inbound shipments were less than 84%
Outbound shipments on time
Year earlier Current
Average 94.0% 93.3%
38.1% of companies had 98% or better on-time outbound shipments
35.1% had on-time outbound shipments between 90.1% and 97.9%
26.8% had on-time outbound shipments less than 90%
Inventory accuracy
Year earlier Current
Average 94.1% 92.9%
49.7% of companies had 98% or better inventory accuracy
27.8% had inventory accuracy between 90.1% and 97.9%
22.5% said inventory accuracy was less than 90%
Outbound shipments with errors
Year earlier Current
Average 3.9% 2.9%
9.6% of companies had 8% or more outbound shipments with errors
24.7% said their outbound shipments with errors were between 2.1% and 7.9%
65.7% said their outbound shipments with errors were less than 2%
Inbound shipments with errors
Year earlier Current
Average 5.5% 4.7%
20.1% of companies said they had 8% or more inbound shipments with errors
29.3% said their inbound shipments with errors were between 2.1% and 7.9%
50.6% said their inbound shipments with errors were less than 2%
Source: Managing Logistics survey.
greatest potential or that labor cuts have left logistics departments less efﬁ-
cient than in the past.
How Companies Are Benchmarking
Three leading ﬁrms shared their benchmarking experiences with attendees
at a recent Logicon conference in Atlanta. Representatives from Deere &

21.
8 LOGISTICS MANAGEMENT
Co., Whirlpool Corp., and Xerox have each undertaken a benchmarking
study and have experienced signiﬁcant logistics productivity improvements
as a result.
The case of Deere is of particular relevance, as the company set out to
right wrongs causing long replenishment cycles, a loss of market share, and,
ultimately, a loss in sales to the competition, explains Earl Brinkley, manager
of logistics planning, North America, for Deere.
He explains, “All of our inventory was committed prior to the selling
season with no inventory available to replenish unexpected sales.” This ulti-
mately led to a variance at the dealer and, if sales did not occur, to large un-
paid inventories. A visit to other companies that had solved similar problems
resulted in a new distribution system at Deere.
First, the company implemented an automatic replenishment system or
perpetual ordering plan. Here, the dealer sets the desired inventory level and
can change that level at any time. On a set day each week, the system auto-
matically generates orders to bring inventory to the desired level. The dealer
can also override and order any quantity and can place orders for emergency
orders at any time.
Second, Deere set up distribution activities in one central consolida-
tion center located in Streator, Ill. The factory produces to a predeter-
mined forecast with variable production quantities. All factory production
is moved to the Central Consolidation and Distribution Center (CCDC),
and all dealer orders are sourced from there. The CCDC, owned and op-
erated by a third party, charges customers based on space and units
shipped, but Deere does guarantee that all deliveries will be shipped the
next day.
The third improvement in Deere’s distribution network comes in the
form of a commitment to deliver within a maximum of seven calendar days,
from order entry to delivery. This is done by submitting bids to less-than-
truckload (LTL) carriers by region and notifying those carriers 24 hours in
advance of shipping. This focus on ﬁll rates, on-time shipments, error-free
deliveries, and dealer satisfaction has led to the virtual elimination of the
aforementioned headaches.
Key Steps in the Benchmark Process
Although the benchmarking process can vary from company to company,
some basic elements must occur in every study:

22.
Benchmarking Logistics Performance 9
1. Identify a process to benchmark. For example, J. Paul Dittmann says that
the company focuses on four main areas: customer service, cost, working
capital, and cycle time.
2. Rank the measure. Dittmann says it was important for Whirlpool to
rank its processes according to the relevance they offer to all company
stakeholders, at all levels in the organization and in the entire supply
chain. Ranking the processes on a scale of 1 to 10 will give a good indi-
cation of which are most relevant and which should most actively be pur-
sued.
3. Identify the best in class for that process. Xerox benchmarked itself against
15 other companies in the areas of service, inventory, and supply chain costs
(see Figure I-1.1). “What we found was that no single company is best in all
three areas,” says Mike Wilding, customer supply assurance manager at Xe-
rox. “We can tell from the research that we are not best in class, but we sure
are close.”
4. Obtain customer feedback. Asking your customers to rate your perfor-
mance can generate valuable information. Xerox sent out a written ques-
tionnaire to its customers asking them to compare Xerox to its top com-
petitor in several areas: ability to keep commitments, ease of contact,
response to inquiry, ﬂexibility, product quality, and product reliability.
Four areas were identiﬁed as most important to customers: reliability, re-
sponsiveness, relationship, and value. “These areas now guide our metrics,”
says Wilding. “We know that customer satisfaction will help us retain, grow,
and add customers.”
Figure I-1.1 Xerox Benchmarking Study
Source: Xerox.

23.
10 LOGISTICS MANAGEMENT
5. Implement measures. Dittmann says that measures should be imple-
mented based on a combination of difﬁculty and value. For instance, al-
though trying to achieve the perfect order is important, it can be difﬁcult.
On the other hand, initiating a customer satisfaction survey is relatively
simple to carry out and also carries a much greater value.
6. Measure the results. Whirlpool has driven 15 days out of its cash-to-
cash cycle time, which Dittmann says equates to $12 million per day of
working capital that has been eliminated in the last year.
Xerox expects to see a 37% reduction in supply chain cost as a percent-
age of revenue and a 31% improvement in inventory as a percentage of rev-
enue. Overall savings are estimated to be $1 billion thanks to a reduction in
supply chain costs and a decrease in inventory.
All three logistics pros stress that although they have realized, or expect
to realize, dramatic results from their benchmarking strategies, such im-
provements start out slowly. “The curve is relatively ﬂat in the early going
but rises quite sharply when installations are further along,” says Dittmann.
N S R T S F C
 G  L E
New research from John Carroll University and West Virginia University
ﬁnds that despite many differences, what large and small companies have in
common is a dedication to transportation management issues. From an in-
depth analysis of 116 ﬁrms, they found the following ﬁve parallels.
1. Small and large ﬁrms exhibit dissimilar patterns of modal usage for outbound
shipments. With respect to outbound shipments (Table I-1.2), three modal
forms—truckload motor carriage, parcel/express land, and railroad—ex-
hibit signiﬁcant differences between small and large ﬁrms. The strongest dif-
ference involves truckload motor carriage, in which nearly 50% of the large
ﬁrms’ outbound shipment volume moves by truckload (TL) carriers, com-
pared to slightly more than 20% by smaller ﬁrms.
Both groups rank the different types of motor carrier service—TL, LTL,
and parcel/express land—as the three most important modal forms for out-
bound shipments. Railroads are the fourth most popular outbound form
among large ﬁrms, compared to ninth most popular among small ﬁrms.

24.
Benchmarking Logistics Performance 11
Table I-1.2 Modal Allocations of Outbound Shipment Volumes
Percentage of Respondents
Modal Form Small Firms Large Firms
LTL motor carriage 28.83 21.43
Parcel/express, land 25.46 8.57
TL motor carriage 21.43 47.96
Parcel/express, air 11.26 4.86
Other 6.15 0.04
Air freight 2.37 1.50
Rail-truck intermodal 0.33 1.29
Ocean 0.30 0.32
Railroad 0.22 7.00
Barge 0.00 0.11
Source: Comparing Logistics Management in Small and Large Firms: An Exploratory Study.
“Other,” consisting primarily of automobiles, ranks ﬁfth among small ﬁrms,
compared to tenth among large ﬁrms.
2. Small and large ﬁrms do not share similar patterns of modal usage for inbound
shipments. The information in Table I-1.3 indicates differences between
small and large companies in parcel/express air and railroad modes. Both
railroad and rail-truck intermodal are ranked higher by larger businesses.
However, regarding TL parcel/express land, both small and large ﬁrms rank
them ﬁrst and second.
3. Small and large ﬁrms do not share similar inbound (shipment-origin) ship-
ping patterns. With respect to inbound shipments, small businesses are equally
likely to have shipment origins within their home state as to have them in
Table I-1.3 Modal Allocations of Inbound Shipment Volumes
Percentage of Respondents
Modal Form Small Firms Large Firms
LTL motor carriage 30.69 46.10
Parcel/express, land 27.47 16.94
TL motor carriage 16.49 7.71
Parcel/express, air 13.73 2.29
Other 2.78 2.19
Air freight 2.07 1.26
Rail-truck intermodal 0.62 0.23
Ocean 0.56 11.48
Railroad 0.25 2.68
Barge 0.04 0.10
Source: Comparing Logistics Management in Small and Large Firms: An Exploratory Study.

25.
12 LOGISTICS MANAGEMENT
Table I-1.4 Outbound Shipment Destinations and Inbound Shipment Origins
Percentage of Shipments
Small Firms Large Firms
Destination
Home state 49.03 24.79
Other U.S. states 40.64 65.00
Non-U.S 6.96 9.70
Origin
Home state 46.22 27.69
Other U.S. states 46.77 59.97
Non-U.S. 5.68 12.31
Source: Comparing Logistics Management in Small and Large Firms: An Exploratory Study.
other U.S. states (see Table I-1.4). The most common shipment origin for
large companies, by contrast, is other U.S. states.
4. Small and large ﬁrms do not share similar outbound (shipment-destination)
shipping patterns. Small ﬁrms are more likely to ship to points located within
their home state, whereas large ﬁrms are most likely to ship to other U.S.
states (see Table I-1.4).
5. Small and large ﬁrms do not share similar usage of select logistical intermedi-
aries (e.g., international freight forwarders, transportation brokers). Study partici-
pants were asked to indicate current usage of ﬁve possible logistics interme-
diaries (Table I-1.5). Not one of the listed intermediaries is used by more
than 35% of the small ﬁrms. By contrast, four of the intermediaries are used
by at least 40% of the large businesses.
On average, large ﬁrms tend to use more than twice the number of in-
termediaries as do their smaller counterparts. In addition, large ﬁrms are
much more likely to employ the services of both international freight for-
Table I-1.5 Current Usage of Logistical Intermediaries
Percentage of Users
Intermediary Small Firms Large Firms
Domestic forwarder 35 57
Transportation brokers 26 40
International freight forwarders 19 63
For-hire warehouses 10 43
Steamship lines 9 31
Total no. of intermediaries 1.00 2.34
Source: Comparing Logistics Management in Small and Large Firms: An Exploratory Study.

26.
Benchmarking Logistics Performance 13
warders and for-hire warehouses. International freight forwarders, the most
popular intermediary among large ﬁrms, emerge as the third most popular
among small companies. On the other hand, transportation brokers are the
second most popular intermediary for small ﬁrms, compared to the fourth
most popular among large companies.
From this research, the hope is that both large and small ﬁrms will dis-
cover that an increased understanding of logistics management often trans-
lates into a competitive edge.
For a copy of Comparing Logistics Management in Small and Large Firms:
An Exploratory Study, contact Paul R. Murphy, professor of business logis-
tics, John Carroll University, University Heights, OH 44118; James M. Da-
ley, associate dean and professor of marketing, John Carroll University; or
A. Michael Knemeyer, assistant professor of marketing, West Virginia Uni-
versity, Morgantown, WV 26506.
WERC S D L M’
P  I I T
Data from the Warehousing Education and Research Council (WERC;
Oak Brook, Ill.; 630-990-0001; www.werc.org) ﬁnd that logistics managers
are effectively increasing inventory turnover. One reason for improvement
is the mandate by top management to reduce inventories.
Warehouse Inventory Turnover: Trends, Change Drivers, Measures, Using the
Data reports that, on average, managers increased inventory turns 30% from
1995 to 1998 and were expected to improve another 27% by 2000, despite
an increase in stock keeping units (SKUs), increased customer requests to re-
duce inventory, and marginal improvements in forecast accuracy.
The breakdown: Eighty-three percent report improving turnover be-
tween 1995 and 1998, whereas 17% experienced no change or a decline in
turns; 89% expected to improve turns between 1998 and 2000, whereas only
11% expected to see turns stay the same or decline. Firms whose turns im-
proved between 1995 and 1998 saw their inventory turnover increase by 38%,
whereas those whose turns declined witnessed a 12% decrease. The expected
increase by 2000 versus 1998 averages around 35%. Those expecting velocity
to diminish forecast declines of 10%. Average turns in 1995 were 7.6; these
ﬁrms projected that average turns would be 13.1 by 2000—an increase of 76%.
For ﬁrms whose turns decreased, top management paid considerably less

27.
14 LOGISTICS MANAGEMENT
attention to inventory reduction than did management for ﬁrms whose turns
increased, highlighting the inﬂuence of top management on the behavior of
operating managers.
Manufacturers Show Better Turns
Manufacturers and wholesalers are the ﬁrms in the supply chain that have tra-
ditionally carried the heaviest inventory burden. On average, however, man-
ufacturers, retailers, and wholesalers have made positive changes in inventory
turns and expect improvements by 2000. Fewer retailers experienced an im-
provement in turns between 1995 and 1998 compared to their wholesaler
and manufacturer counterparts. Only 63% of the retailers indicated that turns
had increased since 1995. Wholesalers were the most optimistic in turns by
the year 2000, as 90% expected to improve turnover. Similarly, 83% of man-
ufacturers and 78% of retailers expected turns to increase by 2000.
Warehouse Combinations Pays Off
The survey indicates that goods ﬂowing through either private or a mixture
of private and third-party warehouses have higher inventory turns than do
goods moving through third-party operations alone (Figure I-1.2). How-
ever, ﬁrms whose products ﬂow only through third-party warehouses report
the largest percentage increase in turnover from 1995 to 2000—from 5 to
11 turns. The size of a warehouse does not impact inventory velocity (Fig-
Figure I-1.2 Inventory Turns Based on Warehouse Type

28.
Benchmarking Logistics Performance 15
Y
Figure I-1.3
FL
Inventory Turns Based on Warehouse Space
AM
ure I-1.3), although ﬁrms with over one million square feet anticipate higher
turnover rates than do smaller warehouses.
SKU Impact on Turn Rates
TE
The data also suggest that the wider array of SKUs ﬂowing through facilities
(76% report an increase in SKUs from 1995 to 1998) has affected inventory
turns (Figure I-1.4). Turns are better when the number of SKUs is below
1,500. The averages for ﬁrms in this bracket were 10.9 in 1995, 14 in 1998,
and 17.1 expected by 2000. According to WERC, these data support the
Figure I-1.4 Inventory Turns Based on SKUs
Team-Fly®

29.
16 LOGISTICS MANAGEMENT
Table I-1.6 Factors Predicted to Drive Change in Inventory Turns by 2000
Percentage of Respondents
Improved systems, inventory management software,
warehouse management systems 16.2
Reduced production/delivery lead time/just-in-time 15.0
Improved forecasting 10.7
Application of supply chain management principles 9.6
More attention to inventory management 6.6
Reductions in SKUs 5.1
Increased throughput 4.0
Elimination of dead inventory 4.0
Inventory costs 3.3
Utilization of cross docking 1.5
Source: Warehouse Inventory Turnover, Warehousing Education and Research Council.
theory that the negative impact of SKU proliferation on inventory velocity
increases and eventually levels off.
Food Companies Enjoy Highest Turns
Food companies and food retailers boast the greatest level of inventory
turnover. All food companies averaged 14 turns in 1995 and 17 in 1998 and
expected 20 in 2000. Conversely, companies in the automotive and repair
parts business and those in apparel and clothing report considerably lower
results. Hardware/tools and chemicals and consumer household products
tended to be on the low side as well, but paper, medical supplies, and con-
sumer electronics were average or above the overall averages of 8 in 1995,
10.4 in 1998, and 13.2 in 2000.
Changes Expected in 2000
According to the responses, software and inventory management tools were
estimated to have the most impact in turnover at the end of 2000 (16.2%).
Improved forecasting ranked third (10.7%), followed by reduced lead times
(15%) and supply chain management principles (9.6%). See Table I-1.6.
C  L M S T 
B L M H E F
Recent research on logistics measurement programs at more than 350 compa-
nies ﬁnds that although the majority measures the performance of some logis-

30.
Benchmarking Logistics Performance 17
tics activities, few measure performance where it really counts. The problem is
that most logistics managers focus their measurement internally, on the perfor-
mance of warehousing, transportation, and other logistics activities. Alterna-
tively, the research team, from the University of Tennessee and Computer Sci-
ences Corporation, insists that metrics should be focused externally on the
customers and suppliers. “Logistics measurement itself has focused on moni-
toring the performance of individual logistics functions instead of tracking the
performance of end-to-end logistics processes,” the researchers observe.
Their research has been captured in an excellent resource, Keeping Score:
Measuring the Business Value of Logistics in the Supply Chain (Council of Lo-
gistics Management; CLM). It is a detailed reference and resource of con-
cepts, strategies, and methods for launching the “new” logistics metrics to
inspire greater supply chain collaboration efﬁciency.
Lessons Learned For Good Logistics Measurement
They are based on the successful logistics measurement programs of compa-
nies such as 3M, International Paper, Motorola, Welch’s, Tyson Foods,
Graybar, Texas Instruments, and Caliber Logistics. The critical lessons in-
clude the following:
• Ensure that logistics measures are in sync with strategy. Different business
strategies have different implications for logistics. For example, being
the low-cost provider means having efﬁcient logistics operations,
which can conﬂict with a strategy of providing tailored customer ser-
vice. Effective logistics measures help managers execute their com-
pany’s strategy.
• Truly understand customer needs. Do not assume that you know what
customers expect or that their needs will remain static. What is im-
portant today might not be critical tomorrow.
• Know your costs in providing logistics services. Deciding how much cus-
tomer service to offer and at what price requires comprehensive cost
measures. With this information, managers can do sophisticated cost-
beneﬁt analyses on different logistics-services scenarios.
• Take a “process” view of logistics. Logistics measures must be deﬁned
ﬁrst at the business process level—not the functional level—of an
organization. This means grouping all logistics activities into three
key processes: sourcing-procurement, fulﬁllment, and planning-
forecasting-scheduling-planning.

31.
18 LOGISTICS MANAGEMENT
“The day when companies across a supply chain use the same
measures to monitor their combined performance will be the day
when order-of-magnitude improvements in logistics performance
across the supply chain will be truly possible,” the researchers insist.
However, most industries are not at the point of making this a reality
because there is little agreement today in any supply chain about how
to measure performance, the team notes. “Companies can start down
this road of supply chain improvement by instituting process mea-
sures with key customers and suppliers,” they insist.
• Focus only on key measures. Although there are hundreds of ways to
track logistics performance, about two dozen measures are important
(see Table I-1.7). These are process measures. They track overall per-
formance of sourcing/procurement and the fulﬁllment processes in
time, cost, and quality. Measures of logistics functions and activities
must be derived from these process measures.
• Stop ineffective measurement activities. Measures are ineffective when
they are subjective, when they obscure bad performance, and when
Table I-1.7 Process Measure Categories
Time Cost
On-time delivery/receipt Finished goods inventory turns
Order cycle time Days sales outstanding
Order cycle time variability Cost to serve
Response time Cash-to-cash cycle time
Forecasting/planning cycle time Total delivered cost
Planning cycle time variability Cost of goodsb
Quality Transportation costsb
Overall customer satisfaction Inventory carrying costsb
Processing accuracy Material handling costsb
Perfect order fulﬁllmenta All other costsb
On-time deliveryb Information systemsb
Complete orderb Administrativeb
Accurate product selectionb Cost of excess capacity
Damage-freeb Cost of capacity shortfall
Accurate invoiceb Other/Supporting
Forecast accuracy Approval exceptions to standard
Planning accuracy Minimum order quantityb
Budgets and operating plansb Change order timingb
Schedule adherence Availability of information
a
Contains a time component
b
Indicates a component of a process measure—shown as explanation
Source: Keeping Score: Measuring the Business Value of Logistics in the Supply Chain.

32.
Benchmarking Logistics Performance 19
they provide misleading statistics. Many measures used today are sub-
jective. For example, rating a supplier’s on-time performance on a
scale of one to ﬁve without data on the percentage of deliveries that
arrive as promised is a subjective measure. To be useful, logistics mea-
sures must be objective. Customer surveys that average a company’s
performance across several measures such as on-time delivery, cycle
time, and accuracy make it difﬁcult to pinpoint problems. Further-
more statistics can be used to distort reality.
• Use information technology. Gathering, processing, and analyzing thou-
sands, even millions, of bits of information every day on logistics per-
formance require advanced information systems. Some organizations
do not capture the right information, however. Other companies
capture information differently in each business function or business
unit. Trading partners usually gather logistics information differently,
which makes it difﬁcult to compare logistics information. Fortu-
nately, as the research team points out, several major technology de-
velopments spell progress for logistics measurements. Supply chain
management systems, enterprise resource planning software, and data
warehouses are some of the solutions. Information technology rap-
idly is becoming a powerful tool for logistics measurement, the re-
search team concludes.
Instituting Effective Logistics Measurement
This study is valuable not only for its identiﬁcation and deﬁnition of effec-
tive process measures but also for its recommended methodology of im-
plementing them. To summarize, managers must ﬁrst assess the measures
already in place. The emphasis should be on identifying the measures them-
selves, and not on the performance level that those measures are indicating.
Managers must then develop process measures such as on-time delivery,
complete order cycle time, total delivered cost, and quality of product re-
ceived. The emphasis on the process measures will depend on the company’s
business strategy.
After prioritizing which process measures to develop ﬁrst, logistics man-
agers can build a prototype solution to test in the ﬁeld. This initial model
may lack data that will be required later. However, the prototype lets man-
agers work out the bugs before they make major investments in collecting
data and developing new information systems.

33.
20 LOGISTICS MANAGEMENT
The measures are revised, sometimes several times, before they are
rolled out. Before they institute the measures, logistics managers must ed-
ucate employees on how to use them. They also must revise incentive sys-
tems so that old measures and reward systems do not impede the new mea-
sures.
Ten Characteristics of Good Measures
According to the council’s 10 basic characteristics of good logistics measures,
a measure
1. Is quantitative. The measure can be expressed as an objective value.
2. Is easy to understand. The measure conveys what it is measuring and
how it is derived.
3. Encourages appropriate behavior. The measure is balanced to reward
productive behavior and discourage game playing.
4. Is visible. The effects of the measure are readily apparent to all in-
volved in the process being measured.
5. Is deﬁned and mutually understood. The measure has been deﬁned by
or agreed to by all key process participants (internally and exter-
nally).
6. Encompasses both outputs and inputs. The measure integrates factors
from all aspects of the process measured.
7. Measures only what is important. The measure focuses on a key per-
formance indicator that is of real value to managing the process.
8. Is multidimensional. The measure is properly balanced between uti-
lization, productivity, and performance and shows the tradeoffs.
9. Uses economies of effort. The beneﬁts of the measure outweigh the
costs of collection and analysis.
10. Facilitates trust. The measure validates the participation among the
various parties.
Keeping Score is available from Publications Department, Council of Lo-
gistics Management, 2805 Butterﬁeld Road, Suite 200, Oak Brook, IL
60523; 630-574-0985; fax, 630-574-0989. Price: $35 for CLM member;
$70 for nonmembers.

35.
22 LOGISTICS MANAGEMENT
Internal Benchmarks Are Most Popular
Companies that describe themselves as small compared to others in their in-
dustry are less likely to benchmark warehouse operations than are medium
or large companies. Further, companies in the automotive and pharmaceu-
tical/medical industries are more likely to benchmark operations, reporting
82.2% and 71.9%, respectively. The chemical industry was the least likely,
with only 26.3% responding.
For most of these companies, benchmarking involves primarily a com-
parison of internal operations. Approximately 60% of the individuals indi-
cated that a comparison of internal operations was the most popular bench-
marking technique, but it is less common for small ﬁrms than for their larger
counterparts.
Among respondents, 21.2% indicated that their ﬁrms regularly compare
their performances to similar functions in the same industry or to an indus-
try leader. Benchmarking of business functions across industries was re-
ported by 11.5% of respondents; the remaining 8.9% indicated a speciﬁc
competitor-to-competitor comparison by product or function.
Three Years Is the Magic Number
Smaller organizations seem less likely to benchmark and are more likely to
have started benchmarking later than are medium and large ﬁrms. According
to the survey, 20% of ﬁrms with less than 500 employees are benchmarking,
whereas 30% of ﬁrms with over 500 employees are using it as a tool.
Most individuals reported that their ﬁrms have been benchmarking
warehouse operations for three years or fewer (63.7%). However, 57% of all
responses were from individuals whose ﬁrms have been benchmarking for
between one and three years.
The WERC study reveals that only 20.6% of the small ﬁrms have been
benchmarking for more than three years compared to 36.3% of medium
ﬁrms and 43.5% of large ﬁrms. In addition, large companies are more than
twice as likely to have been benchmarking for over ﬁve years than are small
ﬁrms (27.8% vs. 13.2%).
Low Levels of Sophistication
Nearly 80% of respondents indicated a range of two to three on a five-
point scale (five being the best) when asked about the level of sophistica-

36.
Benchmarking Logistics Performance 23
tion in benchmarking. The average rating was 2.51. Approximately 6.3%
considered their firms to be novice, whereas 2.1% rated their firms as ex-
pert.
Respondents in the automotive industry reported the highest level of
perceived sophistication. The top two mean ratings were 2.89 for the auto-
motive industry and 2.61 for the consumer goods sector. Respondents re-
porting from the chemical industry possess the lowest level of perceived so-
phistication, at 2.16.
What and How to Benchmark
No matter what the level of sophistication, the most common areas for
benchmarking are at the beginning, middle, and end of the warehousing pro-
cess. Receiving, order picking/packing, and shipping were the only func-
tional areas benchmarked by more than half of the respondents. As indicated
in Table I-1.10, the shipping function received the largest percentage, with
57.6% of the ﬁrms reporting.
The areas benchmarked were signiﬁcantly different depending on the
size of the ﬁrm. Medium and large ﬁrms reported benchmarking more
warehouse activities than smaller ﬁrms. Speciﬁcally, the medium and larger
ﬁrms were more likely to benchmark the entire warehouse process from re-
ceiving to putaway and storage, order picking and packing, shipping and re-
turns. Respondents from smaller ﬁrms indicated that shipping and receiving
were the two areas currently being benchmarked.
Over half (53.6%) of respondents indicated that they used real input to
real output as their measure for benchmarking. This is compared to 41.6%
using real output to standard and 29.9% measuring capacity used to total ca-
pacity available.
Table I-1.10 Functional Areas Being Benchmarked
Functional Area Percent Indicating
Shipping 57.6
Order picking/packing 53.2
Receiving 50.9
Quality issues 37.0
Putaway 31.8
Storage 30.4
Returns 22.0
Damage control 20.5
Source: Warehousing Education and Research Council.

37.
24 LOGISTICS MANAGEMENT
People and Technology Are Essential
For those having difﬁculties with benchmarking, resource issues (people and
technology) stand out as one of the top three obstacles by 59.6% of the re-
spondents and as the number one obstacle by 28.3% of all respondents. This far
outpaced time constraints, cited by 44% (13.6% reported this as the number one
obstacle), and insufﬁcient availability of benchmark data, which had a 39.4%
response rate (reported as the number one obstacle by 11.4% of respondents).
Other obstacles included lack of proper training, lack of top management sup-
port, and the fact that the company sees no value in benchmarking.
Benchmarking will, however, become increasingly common in ware-
house operations. Only 1.6% of the respondents indicated they would either
Determining Benchmarking Success
If you’re thinking about benchmarking your warehouse operations, ask your-
self the following questions and answer “yes,” “no,” or “don’t know.”
• Is there currently a focus on the quality improvement process in your
company and warehouse?
• Is benchmarking the correct quality strategy for your warehouse?
• Do you have an idea of what needs to be benchmarked in the ware-
house operation?
• Do you know what should be measured within the benchmarked
areas?
• Is your benchmarking going to have an internal or external focus?
• Do you have any ideas about with whom you should benchmark?
• Do you know where to get the benchmark data required to effectively
measure activities?
• Do you have an implementation plan for benchmarking?
• Are there measures of success developed for the benchmarking pro-
gram?
• Does your company possess the resources to manage an ongoing
benchmarking process?
If you answered “no” or “don’t know” to more than one of these questions,
the success rate for benchmarking is signiﬁcantly diminished.

38.
Benchmarking Logistics Performance 25
Table I-1.11 Benchmarking in the Next Two Years
Number of Responses
Will not consider 5
May consider 104
Continue current 68
Expand 182
Discontinue 1
Source: Warehousing Education and Research Council.
not benchmark operations or discontinue it. Half of the respondents indi-
cated that they would expand operations (see Table I-1.11).
Industries that expect the most benchmarking expansion are automo-
Y
tive and industrial and ofﬁce products, with 58.8% and 57.3% expecting to
FL
expand the practice, respectively. About 68% of responding companies cur-
rently benchmark, and nearly 50% said they plan to expand benchmarking
AM
activities in the next two years. Fewer than 2% will not be benchmarking.
E X C L U S I V E M A N AG I N G L O G I S T I C S
TE
B E N C H M A R K I N G S T U DY : L         W       
 S  S C D
Key performance indicators (KPIs) help logistics managers track their pro-
gress against short-term goals and strategic plans. Because of the many ben-
eﬁts they bring to customer service, they are suddenly receiving increased
attention. With this in mind, Managing Logistics researched how well man-
agers have done on their KPIs. What it found was for the most part encour-
aging: Outbound on-time shipments increased from the previous year, as
did inventory accuracy (see Table I-1.12). However, there was one major
and troubling exception: The percentage of customer shipment complaints
more than doubled this year over last. The question is whether customers are
more likely to complain today or whether there actually is a growing prob-
lem. Whichever the case, customer service is at issue, and benchmarking can
uncover individual company service levels.
How and What to Measure
Although there are many supply chain processes to measure (see Table
I-1.13), customer service is perhaps the most critical. It is the most robust
indication that the enterprise’s internal business processes are working to
Team-Fly®

39.
26 LOGISTICS MANAGEMENT
Table I-1.12 KPI Results
By Company Size
Up to 500 Over 500
Employees Employees 2000 1999 1998
% inbound shipments on time 86.9 87.3 86.8 88.2 88.6
% outbound shipments on time 93.1 94.8 94.1 93.3 94.0
% inventory accuracy 95.6 93.9 94.6 92.9 94.1
% outbound shipments with errors 4.8 3.2 3.8 2.9 2.9
% customers with shipment complaints 3.7 6.6 5.6 2.6 2.8
By Company Type
Industrial Consumer
Manufacturing Manufacturing
% shipments on time 84.2 90.7
% outbound shipments on time 92.8 94.6
% inventory accuracy 93.8 96.7
% inbound shipments with errors 5.4 5.9
% outbound shipments with errors 8.8 4.0
% customers with shipment complaints 4.3 4.9
Source: Managing Logistics Readership Survey.
optimize the needs of the customer and the goals of the enterprise. The sur-
vey of logistics managers indicates that KPIs have helped them identify ob-
stacles attaining high customer service performance levels.
“We deﬁne and publish logistics key performance indicators to help us
understand what the customer issues are and what we need to do about
them,” says the logistics manager for a small company in Ohio. “We pre-
pared a complete logistics plan that was SMART [speciﬁc, measurable,
achievable, realistic, and time-phased],” says a director of logistics for an of-
ﬁce furniture manufacturer in Michigan. “This led to clear measures that
enable us to track customer service level performance.”
KPIs Are Windows to Customer Satisfaction
Logistics managers also tell us that they measure a series of KPIs to deter-
mine how well they are meeting customer satisfaction. These include per-
centage of shipments on time, percentage of outbound shipments on time,
inventory accuracy, percentage of outbound shipments with errors, and per-
centage of customers with shipment complaints.
None of the managers is reporting high enough percentages (nearing

41.
28 LOGISTICS MANAGEMENT
higher deductions from customers, resulting in a negative impact on proﬁts.
Developing and implementing customer-focused KPIs is now helping this
company turn the situation around.
A Customer Focus in Manufacturing
According to Roddy Martin, an analyst with AMR Research, Inc. (Boston;
617-542-6600), companies realize that logistics and manufacturing depart-
ments must work together to achieve high levels of customer satisfaction.
One leading global food manufacturer focuses on reducing “time and touch”
on the product as a basis of building responsiveness and agility. For example,
information about inventory replaces physical inventory, and accurate de-
mand and sales information allows the manufacturer to produce to meet mar-
ket need. Demand-driven product will help manufacturers make accurate
forecasts and alleviate problems with excess inventory and shortages.
The improved availability of information helps manufacturers execute
global consolidation strategies. Global manufacturers are implementing KPIs
based on optimization of global inventory, orders and materials. Consider
Nestle SA’s plan to implement mySAP.com as a standard across 233,000
global users in an attempt to harmonize Nestle’s global information technol-
ogy (IT) infrastructure within its global supply chain. This will allow an in-
tegrated global supply chain with KPIs that support processes that increase the
visibility of orders, inventory, and commodity purchases across the enterprise.
Why Measure Customer Service
Supply chain consultants at Dechert-Hampe & Co. (Mission Viejo, Calif.;
949-586-6868) believe that whatever KPIs you choose to measure, they
should complement your organizational goals and your customers’ goals. To
bring about the desired results, make sure you understand why you are
measuring customer service performance in the ﬁrst place.
• Measure to motivate: The act of measurement will improve the per-
formance of the process by directing the attention of management
and employees to the process. KPIs will motivate individuals to ex-
amine their contributions, take corrective action, and drive im-
provement.
• Measure to align: KPIs need to be based on customer requirements
that are established ﬁrst at the company level. Then they must be ﬁl-

42.
Benchmarking Logistics Performance 29
tered down through the organization to areas in which employees
have a “line of sight” on the impact of their performance on the ob-
jective.
• Measure to improve: Business processes need constant reﬁnement to re-
ﬂect changing requirements. Thus, measurements should be estab-
lished to improve the output of a particular business process.
Implementation Considerations
Once you know which KPIs you will measure and understand the reasons
why you have chosen those particular metrics, consider the following:
• Data sources. Matching the appropriate data to your metric can be a
challenge. Often, the data required do not reside in the same system.
The various data sources should be identiﬁed and mixed and matched
for each metric.
• Data extractions. If queries are required from multiple systems and
databases, how the data are extracted and merged is a concern. Data-
base managers and functional leaders need to understand the data’s
source and composition.
• Data elements. There may be issues with the way in which transac-
tion-processing systems capture data versus the data elements that are
required for the measurements. Before you implement any measure-
ment, validate what data are available.
• Assigning responsibility. Will IT or a functional user be responsible for
generating reports to get the required information? Who will have
responsibility for converting data to formats for analysis? These re-
sponsibilities need to be clearly assigned and understood.
• Commitment. Both management and those directly responsible for
delivery against the metric must follow up on the measurement’s
message. By searching for root causes and then following up with ap-
propriate corrective action to implement solutions, you achieve sus-
tained metric improvement.
• Presentation. The metrics must be displayed in a simple, meaningful
way. Reformatting data into a graphical display is very important.
• Hierarchical approach. Measurements should exist at the enterprise level
and drill down to the other levels of the organization. Maintain a

43.
30 LOGISTICS MANAGEMENT
line-of-sight relationship between the metric and the organizational
level’s ability to improve the metric.
• Appraisal and compensation. These activities should be tied to the met-
rics. This assures that all associates understand the importance of or-
ganization improvements and the evaluation of their own perfor-
mance.
T  B: I-T-S R
D  I L  H
It’s been banner times for inventory management. “Business logistics costs
were equal to 9.9% of U.S. gross domestic product (GDP), and investment
in inventory became much more efﬁcient than ever before,” reported
Robert V. Delaney, vice president of Cass Information Systems, a subsidiary
of Cass Commercial Corporation (Bridgeton, Mo.; www.cassinfo.com).
Commenting in the 11th Annual State of Logistics Report (cosponsored by
Cass Information Systems and ProLogis of Aurora, Colo.), he ventured that
the “growing use of the Internet and the trends in electronic commerce ap-
pear to be improving the visibility of inventory and its location within our
supply chains.”
Figure I-1.5 Inventory-to-Sales Ratio Plummets to Record Low
Source: 11th Annual State of Logistics Report.

44.
Benchmarking Logistics Performance 31
What a Difference a Year Makes
“We were disappointed to report previously that the inventory-to-sales ra-
tio had been stuck in a band between 1.38 and 1.40 months of supply since
1996,” Delaney said. “We did not appear to be taking inventory out of the
system—merely shifting where inventory was held within the supply chain.”
Further, disappointment was registered with estimates that some 40% of
U.S. companies planned to stockpile items as part of their contingency plan-
ning.
Instead, the inventory-to-sales ratio steadily declined from 1.38 months
of supply in January to 1.32 months of supply at year-end (see Figure I-1.5).
Delaney also observed, “The ratio fell even further, to 1.31 months of
supply, in April of the next year.” These data are based on the revisions to
the National Income and Product Accounts by the U.S. Department of
Commerce (see sidebars).
“This was a record low in the history of the revised data,” he noted. To
Storm Clouds on the Inventory Horizon?
The U.S. Department of Transportation’s Federal Motor Carrier Safety Ad-
ministration has proposed revisions to its hours-of-service regulations that
could sap all of this current enthusiasm and send inventory levels spiraling. One
of the proposals would limit long-haul and regional drivers to no more than 12
hours on duty in a 24-hour workday, with 2-hour breaks. Also, the driver
would not be allowed to work for more than 60 hours in any workweek.
According to Robert V. Delaney of Cass Information Systems, who cal-
culated a “best efforts estimate” of new regulations, the following might be
the effects over a three-year period:
• $50 billion increase in expenditures for trucking services, because as
many as 20% more trucks could be on the nation’s road system, with
the new regulations increasing costs by about $ .20 per pound
• $100 billion of unneeded inventory, as the proposed regulations
would require additional safety stocks at each point of the supply chain
system, which could increase even higher with the ever-shortening
procurement cycles
• $25 billion of additional inventory carrying cost
“This analysis reveals how transportation and inventory costs are integrated,”
Delaney concludes.

45.
32 LOGISTICS MANAGEMENT
Government Revises the Data: What It All Means
The U.S. Department of Commerce’s Bureau of Economic Analysis has re-
sponded to data about information technology and productivity. A funda-
mental improvement is that business and government purchases of software,
as well as their internal production of software, will now be recognized as in-
vestment.
“With the beneﬁt of the comprehensive revision, we can now see that
our business logistics system was more productive than previously reported,”
Robert V. Delaney of Cass Information Systems maintains. The National In-
come and Product Accounts (which form the basis of Delaney’s Annual State
of Logistics analysis) have been revised back to 1959. Based on the revisions,
• The value of nominal business inventory investment has been reduced
by about 3.0% annually.
• The annual cost of business logistics in relation to nominal GDP has
been reduced by 0.3% to 0.5%.
The bottom line is that logistics costs were below Delaney’s target of 10%
on nominal GDP in 1993 (9.9%), and they dipped to that level once again in
the latest year. “We are encouraged,” he declared. “We may be able to main-
tain U.S. business logistics costs at the goal that we set in 1990—namely 10%,
or lower, of nominal GDP.”
be sure, inventory investment did increase during the year. However, ac-
cording to the data, it moved at a slower rate than in the prior year, except
for the fourth quarter. “There may have been some stock building during
the fourth quarter among wholesalers, but we cannot overlook the surpris-
ingly strong level of sales,” he observed.
During the entire year covered in the report, inventories increased by
4.6%, but sales increased by 9.2%, or “twice as fast as inventory,” as Delaney
declared. “And we know that fourth quarter sales were so strong that they
powered quarterly GDP above 7%.”
A Deeper Look into the Statistics
Transportation consultant Rosalyn Wilson, president of R. Wilson, Inc.
(rosalyn@transopolis.com), revealed that the cost of the business logistics
system increased to $921 billion, or the equivalent of 9.9% of nominal GDP
(see Table I-1.14). The average investment in all business inventory in agri-
culture, mining, construction, services, manufacturing, wholesale, and retail
trade was $1,376 trillion.

47.
34 LOGISTICS MANAGEMENT
The cost of carrying inventory includes interest at the annualized com-
mercial paper rate of 5.1%. The cost of taxes, obsolescence, depreciation,
and insurance follow the Alford-Bangs formula that is used in this method-
ology. Obsolescence accounts for nearly 40% of total inventory carrying cost
in this methodology.
“This is consistent with the challenges facing inventory managers in our
fast cycle procurement, just-in-time world,” Wilson observed. She further
reported the following:
• The trucking industry continues to dominate the business logistics
system with an 81.2% share of the nation’s freight bill, as trucking
costs increased by 5.9%.
• Railroad revenues increased by 1.0%.
• Water and oil pipeline services were ﬂat.
• Domestic airfreight revenues increased by 6%, and international air
freight revenues increased by 8%.
• Logistics administration is estimated at 4% of total logistics cost.
Since 1982 the improvements in inventory efﬁciency have been dra-
matic, according to Wilson, “as we replaced inventory with more versatile
and responsive transportation services.” However, she cautioned, “We will
be challenged to keep transportation costs stable at 6.0% of GDP as we have
for the past seven years. Inventory management will be the key to maintain-
ing business logistics costs at 10%, or lower, of nominal GDP.”
Demand for Warehousing Services to Continue Even
with Improvements in Inventory Efficiency
Delaney countered the investment analysts’ traditional assumption that more
efﬁcient management of inventory will reduce the demand for warehousing
services. “That is not the case, and never has been,” he declared. Even
though it is more efﬁcient, Delaney explains, “inventory investment comes
into the economy quarter after quarter, and it has to be warehoused.” In fact,
the annual increase in square footage of warehouse space has been increas-
ing steadily since 1996, following a slump in the early 1990s.
Services Performed within the Warehouse Are Changing
In addition to storage, handling, and inventory management, warehousing
companies are assembling products, organizing kits, bar coding, labeling,
and providing a range of other value-added services.

48.
Benchmarking Logistics Performance 35
“Warehousing companies are even providing fulﬁllment services to sup-
port the requirements of e-commerce companies,” he notes. “Despite the
improvements in inventory management, we believe that the demand for
warehousing services will continue to grow consistent with industrial pro-
duction and consumer spending,” Delaney projects. “Logistics decision
makers will continue to make changes reﬂecting trends in automation, fa-
vorable locations, building design, operating methods, and procedures. And,
it will all happen faster and with greater visibility because of the Internet and
e-commerce,” Delaney declares.
H W  G M
Y
C M L 
FL
I B
AM
In today’s supply chain environment, the primary focus is on performance
metrics. However, the discussion is often long on what to measure but short
on the rationale for selecting a speciﬁc measure. That’s why it’s refreshing—
and informative—to hear from industry leaders who do focus on deﬁning
TE
meaningful and useful measures. For example, Dennis Dreyer, director of
logistics and service parts operation at General Motors (Grand Blanc, Mich.;
812-606-4215) acknowledges, “When we look at a measure, the ﬁrst ques-
tion we ask ourselves is: ‘What really is a meaningful measure, and what el-
ement am I looking for in it?’”
J. Paul Dittman similarly declares, “When we think about setting stan-
dards to judge our performance metrics, we insist that they have to capture
the elements of what’s really important to us, and reﬂect our global supply
chain strategy.” To get a ﬁx on Dreyer’s and Dittman’s thinking, we caught
up with both at recent conferences.
Whirlpool’s “Overarching Principles”
“We set up a series of overarching principles for our supply chain measures,”
Dittman explained at the Proven Performance Metrics in Logistics Confer-
ence (Institute for International Research, New York; www.iir-ny.com). Es-
sentially, each proposed measure has to conform to the following before be-
ing implemented:
• Globally common measures to facilitate sharing of best practices (i.e., to
have the same supply chain measures in all regions of the world to set up
a common framework for a common dialog to share best practices)
Team-Fly®

49.
36 LOGISTICS MANAGEMENT
• Interlinkage to avoid suboptimization (i.e., if a measure is created for
inventory, an offsetting one is established for customer service to
maintain balance)
• External linkage to economic value-added metric (i.e., it combines
balance sheet and income statement in one measure to avoid being
one-dimensional)
• A focus on assets, cost, quality (customer service), and cycle time
• Common-shared measures across all functions
• Full communication and understanding throughout the organization
(e.g., “if not done, it’s all a waste of time,” as Dittman asserts)
General Motor’s Meaningful Metrics
Dreyer insists that most of the measures have been around for a long time
and that they do not fundamentally change (see sidebar). “You can put these
measures into three categories, cost, quality and speed,” he itemized at an
Interlog conference (Worldwide Business Research, New York; www.
wbresearch.com).
Cost, Quality, and Speed Indicators Typically Measured across
General Motors’s Supply Chain
Cost Measures
Inventory turns
Warehouse productivity
Outbound transportation cost
Redistribution transportation cost
Inbound transportation cost
Quality Metrics
Unshipped customer orders
Carrier damage
System line ﬁll
PDC line ﬁll
Order errors
Carrier equipment availability
Speed Indicators
Carrier transit times
Carrier on-time pickup
Order response time

50.
Benchmarking Logistics Performance 37
“When we look at a process, we want to make sure that we understand
the cost, the speed, and the quality issues within a particular piece of the
supply chain network.” To accomplish this, Dreyer outlined their approach:
• Timeliness of the data. This is one of the ﬁrst considerations. The ques-
tion under deliberation is “What really is the timely way to look at
the speciﬁc data?” In explanation, he recalls that when he ﬁrst started
in service parts the ﬁnancial people would provide him with a report
at the end of the quarter to tell him how he did. “Now, we can pick
up this information monthly, weekly, or daily,” Dreyer explains.
“This certainly changes our ability to look at our business.”
• What do the data support? Do they support a strategic, tactical, or op-
erational issue? “We may be talking about the same issue, but we may
need to look at it from three different perspectives and time frames,”
he says. When considering the strategic versus the tactical and oper-
ational measures, the difference is related to time. For example, when
discussing strategic metrics, Dreyer is referring to monitoring trends.
“When we get down to the tactical and operational measures, we’re
looking at a more current type of information,” he explains.
• Provide data with sufﬁcient amount of detail. Technology is allowing end
users to drill down further and further for information. “What we
need to do is look at the highest level and ask how far do I want to
drill down on a regular and timely basis,” says Dreyer. However, he
reﬂects, “I may still need access to that ﬁner detail in case I want to
answer a question that I may have, or to provide information to
someone else who raises a question.”
• Relevancy of the data and the problem with ﬁnancial-oriented metrics. “Typ-
ically, we’ve looked at things the way accountants have told us to look
at them,” Dreyer mentions. “Now we’re looking at our measures
with a logistics focus, and there’s a difference between a ﬁnancial per-
spective and a logistical one.”
According to Ted Farris of the University of North Texas (Denton,
Texas; 940-565-4368), “The key advantage to using nonﬁnancial measure-
ments, such as those now being used by logisticians, is that they are directly
traceable to success factors and strategies. These are often hidden through
the agglomeration of reporting areas on ﬁnancial reports.” However, in-
ventory managers must recognize that the greatest downside to the use of

51.
38 LOGISTICS MANAGEMENT
The Criteria for Effective Measurements
Ted Farris of the University of North Texas (Denton, Texas; 940-565-4368)
recommends the following criteria for evaluating an effective measure:
• Validity. Does the measure track the true customer requirements or
real productivity?
• Coverage. Does the measure track all of the relevant factors?
• Comparability. Can the measure be compared across time or indiffer-
ent locations?
• Completeness. Are all-important sources that yield an output tracked
by the measure?
• Usefulness. Does the measure guide action?
• Compatibility. Is the measure compatible with existing data and infor-
mation ﬂow?
• Cost effectiveness. What are the tradeoffs between the cost of measure-
ment and the potential beneﬁts to be gained?
“Also avoid overmeasuring as a means of managing,” he advised at the
Council of Logistics Management Annual Conference. “Instead, focus on a
limited set of high-impact measures.”
nonﬁnancial measures is that they don’t directly translate to proﬁts and the
bottom line.
“Nonﬁnancial measures may conﬂict with ﬁnancial performance mea-
sures during the short-run,” Farris declares. This, in turn, could make it dif-
ﬁcult to implement an improvement without having support of a direct ﬁ-
nancial beneﬁt (see sidebar).
Whirlpool’s Dittman agrees: “The ﬁnancial beneﬁts from what we do
in logistics accrue in a nonlinear, nontraditional, intricate-to-predict man-
ner. The curve is relatively ﬂat in the early going, but it rises quite sharply
when the installation is further along.” He too observes that “most tradi-
tional accounting systems cannot be used to predict the impact of world-
class logistics on costs. In fact, many traditional accounting systems can ac-
tually work to prevent adoption of the concepts,” he charges.
In conclusion, Dittman explains, “Build a framework by which you can
judge the performance metrics ﬁrst; don’t just throw them out there to be
used.”

52.
Chapter I-2
Distribution
T L-T W  C C T
Although high-tech solutions to protect merchandise shipments are increas-
ingly feasible, they are not the quickest or cheapest strategy. In fact, even the
most sophisticated cargo tracking systems attack only 15% of the problem,
according to Louis Tyska, managing director for Pinkerton Consulting and
Investigations Services.
Speaking on the topic of high value logistics and global supply chain
protection, Tyska told logistics managers that sophisticated access control
and shipment tracking systems are a viable option, but that they take aim at
large-scale theft, which is not the biggest problem.
Shipment hijack and after-hours burglary make up a small percentage
of the goods that never make it to their ﬁnal destination. In fact, an over-
whelming portion of all shrinkage—85%—comes from old-fashioned pil-
ferage. “It’s basic. When somebody is touching merchandise, somebody is
going to develop a conspiracy to steal,” says Tyska. And to attack that type of
theft, there are better ways to protect an investment than by tagging ship-
ments for satellite tracking.
Eliminate the Confusion
How do crooks get away with lifting merchandise in shipping and receiving
(S&R) areas? First and foremost, they take advantage of the confusion that
is inherent at S&R bays. Tyska cites these 10 ways to regain at least some
control:
39

53.
40 LOGISTICS MANAGEMENT
1. Separate shipping and receiving. It’s the most practical solution to cut
confusion, says Tyska, but it also requires local management commitment.
2. Develop a chart identifying cargo ﬂow. Looking at a ﬂow chart will help
you identify risks and the points at which people are exposed to the process
(and at which you are at a risk for loss).
3. Get your hands on controller letters. These are company documents that
report on the state of your business and track losses, damages, and claims.
CFOs have them, and you need them, too. The only way to cut cargo theft
is to know what theft is going on, and auditors frequently have records that
they do not readily share. Other sources of information that can help you
understand the threat you face include the following:
• Local authorities. They will have an understanding of what warehouse
items are hot on the local market.
• Risk managers. Whenever you go above a certain level of loss, other
people in your company are tracking it.
• Manufacturing. If they are being slowed in production because parts
haven’t arrived, that can alert you to small amounts of cargo theft that
you might not otherwise be able to track.
4. Conduct director-to-security background veriﬁcations. “Passing the gar-
bage” is common in trucking, and laws protecting teamsters make it difﬁcult
to uncover the handling of your shipments by unscrupulous drivers. “HR
[human resources] to HR doesn’t get it done,” says Tyska.
5. Improve housekeeping. Broken cartons, debris, and piles of cardboard
add to the confusion that thieves use as cover. Try shrink-wrapping or band-
ing cartons to reduce casual theft of small amounts of merchandise.
6. Provide a secure area for high-value goods. Separate them from the less
valuable merchandise that moves through your S&R areas. If warehouse
managers tell you, “It’s all valuable,” use that ammunition to enforce stricter
controls all around.
7. Provide a driver waiting room. If you don’t, “they’ll wander your cargo
exchange area and shop,” says Tyska. If a room is not feasible, paint a line that
drivers are not allowed to cross.
8. Ensure that perimeter controls are used. This means keeping cargo doors
closed when you are not actively receiving. If employees need the doors
open for air, purchase drop-down chain gates.
9. Tighten receiving controls. Use an inbound register that requires the fol-
lowing information: carrier’s name and truck number, driver’s name, com-

54.
Distribution 41
modity and quantity, date and time of arrival, and inspection veriﬁcation.
Keeping this record on ﬁle will help your team conduct an investigation in
the event of theft.
10. Investigate how documentation is handled. No cargo should move with-
out documentation, even if it’s being shifted within the warehouse itself. In
addition, make sure that documentation is complete and always signed in
ink.
Although these steps should come ﬁrst, some cargo is valuable enough
that it needs constant tracking. For a primer on the option of a satellite track-
and-trace system, see the accompanying sidebar.
How to Make Satellite Tracking an Effective Tool
Some transportation and logistics managers oversee the transport of merchan-
dise that is so valuable that a satellite tracking system may be part of the loss
control solution.
The Basics of a Track-and-Trace System
1. A device (usually referred to as a global positioning system, or GPS) is
placed in a truck or ship and is capable of making a ﬁx of its position using
satellite signals.
2. The ﬁx is then transmitted through a mobile/cellular communication
device to a central station.
3. The central station is equipped with hardware and software that en-
ables it to identify where the subject is on a detailed digitized map (the accu-
racy should be less than 5 meters).
4. If the line of communication remains open, a new ﬁx will be provided
every 5 to 10 seconds. This makes it possible to check the speed, direction,
and behavior of the vehicle being tracked. Depending on the received signal
and the type of alarm or emergency, the central station will follow procedures
that were previously agreed upon.
Developing an Effective Track-and-Trace System
1. The black box. This is the unit that contains all the devices for positions,
communications, and connections to inputs and outputs. Options
include
(continued)

55.
42 LOGISTICS MANAGEMENT
• A connection to the vehicle’s alarm system.
• A panic button that allows the driver to generate a signal in an
emergency.
• Digital ports that can be used to action any number of signals to
the vehicle, such as locking doors, closing windows, activating
sirens, lights or signals, reduce fuel, and so on.
• Analog ports that are used to connect to analog information, such
as engine temperature, oil pressure, and trailer temperature. This
is helpful in instances of temperature-sensitive cargo.
2. The network of service stations. Make sure your system provider
• Guarantees that they can position, maintain, and repair devices in
any location in which your vehicle or cargo will travel in the global
logistics system
• Does not disturb the logistics processes of your company
• Signs agreements to safeguard your company’s integrity
• Offers adequate training and instruction to staff
3. The central monitoring station. It needs to track and trace signals 24 hours
a day, throughout the year, and can be organized in one of three ways:
• Corporate control without third parties. Use when needed to protect
sensitive freight if you have the infrastructure to integrate into an
existing control station. Before you do, consider national/state
standards for control stations; stafﬁng required for all-hours repair;
legal issues related to mistakes; cost of purchasing software, hard-
ware, and digital maps; and staff required to upload or download
from the system.
• Split functionality. This is the most common setup for the GPS. The
security monitoring station handles all signals coming from the
track-and-trace device according to agreed-upon procedures.
Firms have a mirror system enabling them to track and trace ve-
hicles, to use the system for logistics, such as route planning, and
to exchange data, such as downloading bar code readers.
• Outsourcing. All central station activities are outsourced to a private
security monitoring sta